Optimal Pricing Mechanisms with Unknown Demand

Ilya Segal
2003 The American Economic Review  
The standard profit-maximizing multiunit auction intersects the submitted demand curve with a preset reservation supply curve, which is determined using the distribution from which the buyers' valuations are drawn. However, when this distribution is unknown, a preset supply curve cannot maximize monopoly profits. The optimal pricing mechanism in this situation sets a price for each buyer on the basis of the demand distribution inferred statistically from other buyers' bids. The resulting profit
more » ... converges to the optimal monopoly profit with known demand as the number of buyers goes to infinity, and convergence can be substantially faster than with sequential price experimentation. (
doi:10.1257/000282803322156963 fatcat:ct55nffm7fdv7kj6xmp6facojm